Babbage: pioneer economist
by Nathan Rosenberg

`. . . the arrangements which ought to regulate the interior economy of a
manufactory, are founded on principles of deeper root than may have been
supposed, and are capable of being usefully employed in preparing the road to
some of the sublimest investigations of the human mind.[1]

Charles Babbage has recently been rediscovered as the "pioneer of the
computer."[2]
He needs to be rediscovered a second time for his contribution to
the understanding of economics, especially for his penetrating and original
insights into the economic role played by technological change in the course of
industrial development. Indeed, it is fair to say that it was Babbage's book
which first introduced the factory into the realm of economic analysis.

Babbage has lived a furtive, almost fugitive existence in the literature of
economics. Joseph Schumpeter, in his magisterial History of Economic
Analysis, refers to Babbage's book, On the Economyof Machinery
and Manufactures, as "a remarkable performance of a remarkable man."[3]; Nevertheless, although Schumpeter's well-known
book is more than 1,200 dense pages long, the treatment of Babbage is confined
to a single footnote. Marl Blaug, in his Economic Theory in
Retrospect, uses the same adjective as Schumpeter. He cites Babbage's book
only to point out its influence on John Stuart Mill's discussion of increasing
returns to scale in chapter 9 of book I of Mill's Principles of Political
Economy. Mill's treatment of that N subject, Blaug states, "is heavily
indebted to a remarkable book, On theEconomy of Machinery and
Manufactures (1833) by Charles Babbage."[4]

Babbage the economist deserves far better treatment than this. His book
contains important contributions to economics which have received unduly short
shrift. A book that, at the time of its publication, provided a considerable
improvement upon a topic as seminal as Adam Smith's treatment of the division
of labor and, at the same time, offered the first systematic analysis of the
economies associated with increasing returns to scale, surely deserves to be
rescued from the comparative obscurity of footnotes and parenthetic
references.

Babbage's purpose in writing On the Economy of Machinery and
Manufactures was to examine "the mechanical principles which regulate the
application of machinery to arts and manufactures" (p. iii). The book is, in
invaluable for its detailed, nontechnical descriptions of the manufacturing
technologies that were employed in English workshops at the beginning of the
1830s. Babbage had, himself, travelled extensively through the industrial
districts of England as well as continental Europe. And he was, as we know from
his other remarkable accomplishments, no casual observer. On the contrary, he
saw everything through the inquiring eyes of someone searching for more general
underlying principles, categories, or commonalities. He sought, continuously,
for some basis for classification and meaningful comparison. In brief, he
wanted to illuminate his subject matter by rendering it subject to
quantification and calculation.

In fact, the relationship of Babbage the economist to Babbage the inventor is
a close one. That is to say, the book is, in an important sense, a by-product
of Babbage's lifelong preoccupation with the development of a calculating
machine. Indeed, the opening sentence of the preface to the first edition of
the book states that: "The present volume may be considered as one of the
consequences that have resulted from the Calculating-Engine, the construction
of which I have been so long superintending." Thus, the book shares a common
provenance with the calculating engine. The power of systematic reasoning that
Babbage invested in his attempt to develop such a machine is abundantly evident
in the ways in which he organizes and classifies his data on the English
industrial establishment in this books.[5]

This is particularly evident in chapter 11, "Of Copying," by far the longest
chapter in the book. Babbage brings together in this chapter a wide array of
industrial processes involving specific applications of printing, casting,
moulding, engraving, stamping, punching, etc. The cheapness of machine
operations in such processes turns upon the skill devoted to some original
instrument or tool that subsequently may become the basis for many thousands of
copies. The situation - involving the common denominator of a large fixed cost
that lays the basis for cheap per-unit costs - is typical of the mass
production technologies that were just beginning to emerge in Babbage's
time.[6]

Babbage's travels through the manufacturing workshops of England were largely a
consequence of the difficulties that he encountered in his own construction
problems and his determination to become better informed concerning his
technological options. Babbage's observations and descriptions are so
informative that his book is well worth reading today just for its contribution
to the history of technology, even if it were totally devoid of any other
merit. Babbage even provides the reader with a guide for extracting useful and
reliable information concerning productivity from factory
visits.[7] The guide
includes a suggested set of structured questions as well as some discreet
methods of verifying the accuracy of responses by 2 checking for the internal
consistency of answers. He also offers suggestions: when reliable information
on factory output is not available:

`When this cannot be ascertained, the number of operations performed in a given
time may frequently be counted when the workman is quite unconscious that any
person is observing him. Thus the sound made by the motion of a loom may enable
the observer to count the number of strokes per minute, even though he is
outside the building in which it is contained. (p. 117)

Babbage would certainly have made a good industrial spy!

If Babbage at times seems to be writing with an excessively didactic hand, it
is partly because he believes that greater attention to the empirical world,
and especially the activities inside a factory, would significantly elevate the
quality of economic analysis and reasoning generally.

`Political economists have been reproached with too small a use of facts, and
too large an employment of theory. If facts are wanting, let it be remembered
that the closet-philosopher is unfortunately too little acquainted with the
admirable arrangements of the factory; and that no class of persons can supply
so readily, and with so little sacrifice of time, the data on which all the
reasoning of political economists are founded, as the merchants and
manufacturer; and, unquestionably, to no class are the deductions to which they
give rise so important. Nor let it be feared that erroneous deductions may be
made from such recorded facts: the errors which arise from the absence of facts
are far more numerous and more durable than those which result from unsound
reasoning respecting true data.`(p. 156)

A person who could pen these words - especially the last sentence obviously has
something of importance to say to the present generation of
economists![8]

Babbage's distinctly economic contribution is taken up in section 11, the
largest portion of the book, where he considers the "economic principles which
regulate the application of machinery," after the purely "mechanical
principles" that were the focus of section I. The central point is that, as
soon as one undertakes to produce a product in large volume, to become a
manufacturer" rather than a "maker," it becomes necessary to devote careful and
explicit attention to the organisation of production, to "the whole system" (p.
121) of the factory. Moreover, a manufacturer must be prepared to utilize, and
perhaps to design, tools made expressly for a specialized purpose. One needs to
consider, in other words, the division of labor.

Babbage begins his critical chapter 19, "On the Division of Labour," by
asserting that "Perhaps the most important principle on which the economy of a
manufacture depends, is the division of labour [Babbage's italics]
amongst the persons who perform the work" (p. 169). Babbage's most distinctive
contributions to the discipline of economics are generally regarded as his
contributions to this subject. That view will not be challenged. However, I
will suggest that his analysis of the division of labor constitutes an advance
upon the classic treatment of the subject of much greater dimensions than has
yet been recognized. Indeed, Babbage himself, a man who did not suffer from
excessive modesty, also understated the extent of his own improvement upon Adam
Smith.

As Babbage reminds his readers, Smith attributed the increased productivity
flowing from the division of labor to "three different circumstances: first,
to the increase of dexterity in every particular workman; secondly, to the
saving of time, which is commonly lost in passing from one species of work to
another; and, lastly, to the invention of a great number of machines which
facilitate and abridge labour, and enable one man to do the work of many" (p.
175). Babbage goes on to assert that Smith has overlooked a key advantage that
flows from the analysis of The Wealth of Nations, and that the analysis
is therefore seriously incomplete.

When there is only a limited division of labor, each worker is required to
perform a number of tasks, involving a variety of skills and physical
capabilities. The supply of such skills and capabilities varies considerably
for reasons having to do with length of training, previous experience, and
natural differences in physical endowment. Accordingly, the remuneration
received by workers who supply different skills will also vary considerably.

However, when there is a limited division of labor the employer is required, in
effect, to purchase "bundles" of labor. Consequently, a workman who is capable
of performing highly skilled work will need to receive a wage appropriate to
these high skill levels, even though he will spend much, perhaps most, of his
time performing work of lower skill, and pay, levels.

Seen from this perspective, the great virtue of the division of labor is that
it permits an "unbundling" of labor skills, and allows the employer to pay for
each separate labor process no more than the market value of the lower
capabilities commensurate with such work. Under an extensive division of labor,
the employer is no longer confronted with the necessity of purchasing labor
corresponding to higher skill levels than those required for the specific
project at hand.

In Babbage's own words,

`the master manufacturer by dividing the work to be executed into different
processes, each requiring different degrees of skill or of force, can purchase
exactly that precise quantity of both which is necessary for each process;
whereas, if the whole work were executed by one workman, that person must
possess sufficient skill to perform the most difficult, and sufficient strength
to execute the most laborious, of the operations into which the art is divided
(pp 175-176; emphasis Babbage's)

In elaborating his analysis of this point, and examining its
implications, Babbage reverts to Adam Smith's time-honored example of the
division of labor in a pin factory. He presents a detailed enumeration of the
sequence of steps involved in the English manufacture of pins - wire-drawing,
wirers straightening, pointing, twisting, and cutting the heads, heading,
tinning, and papering. For each separate step in the sequence, he identifies
those who supply the labor - man, woman, boy, girl - and their rate of
remuneration for each step. The wage rates of these separate labor inputs vary
all the way from 4.5 pence per day up to 6 shillings per day (see table, p. 184
). Taking into account the amount of time required for each step, and
assuming that the highest-paid worker, the pin whitener (who earned 6 shillings
a day at his speciality), could carry out each of the steps in pinmaking in
the same amount of time as the individuals who perform each step under the
prevailing division of labor. Babbage concludes that pins would cost 3.75
times as much as they actually did (p. 186). He then draws the
generalisation: "The higher the skill required of the workman in any one
process of a manufacture, and the smaller the time during which it is
employed, so much the greater will be the advantage of separating that
process from the rest, and devoting one person's attention entirely to it"
(pp. ,168-187).

Years later, Babbage cogently restated his central point as follows:

`The most effective cause of the cheapness produced by the division of labour
is this:

By dividing the work to be executed into different processes, each requiring
different degrees of skill, or of force, the master manufacturer can purchase
exactly that precise quantity of both which is necessary for each process.
Whereas if the whole work were executed by one workman, that person must
possess sufficient skill perform the most difficult, and sufficient strength
to execute the most laborious, of those operations into which the art is
divided.

Needle-making is perhaps the best illustration of the overpowering effect of
this cause. The operatives in this manufacture consist of children, women,
and men, earning wages varying from three or four shillings up to five pounds
per week . Those who point the needles gain about two pounds. The man who
hardens and tempers the needles earns from five to six pounds per week. It
ought also to be observed that one man is sufficient to temper the needles for
a large factory; consequently the time spent on each needle by the most
expensive operative is excessively small.

But if a manufacturer insist on employing one man to make the whole needle, he
must pay at the rate of five pounds a week for every portion of the labour
bestowed upon it.[9]

This analysis of the benefits of an extensive division of labor was highly
original. It did indeed constitute a major addition to Adam Smith's
formulation, and it was precisely this point that exercised a heavy influence
upon later economists, most especially, as we will see later, Marx.
Nevertheless, Babbage also improved upon the formulation of Smith and others
in several additional important respects that have not been widely recognized.
This involved not only points of clarification but also points of analytical
rigor.

Babbage observes that a more extensive division of labor leads to a reduction
in the time required for learning, and therefore to a shortening of the time
period during which a new labor force entrant is employed in a relatively
unproductive and unremunerative way (p. 170). Then he makes the important
observation, not to be found in Adam Smith, that conventional apprenticeship
of five to seven years' duration was necessary in the past, not merely to allow
the young man to acquire the requisite skill, but also "to enable him to repay
by his labour, during the latter portion of his time, the expense incurred by
his master at its commencement" (p. 170). If a new labor force entrant is
required to learn only a single operation instead of many, he will much more
quickly arrive at the stage where his employment generates a profit to his
employer. If a competitive situations prevails among the masters, "the
apprentice will be able to make better terms, and diminish the period of his
servitude" (p. 170). Thus, the length of apprenticeship needs to be understood
as determined not just by the timed necessary to acquire a skill, but also by
the time necessary for the master to reap a normal rate of return upon his
investment in the human capital of his apprentice (p. 170). One does not need
to interpret Babbage's analysis here with excessive generosity in order to see
it as a tantalizing precursor of the contemporary work of Gary Becker and Jacob
Mincer on learning-by-doing.[10]

Babbage also makes an extremely significant qualification to Adam Smith's
central point that specialisation leads to increased dexterity and therefore
greater speed on the part of the workman who is no longer required to perform a
number of separate operations. Babbage refers to Smith's example of
nail-making. Smith had claimed that a smith, who was accustomed to make nails,
but who was not solely occupied as a nailer, could only make 800 to 1,000 per
day, "whilst a lad who had never exercised any other trade, can make upwards of
two thousand three hundred a day (p. 173). In the case of the boys in his
example, Smith had added the (perhaps not insignificant) qualification, "when
they exerted themselves."[11] Moreover, Smith, as reported in his lectures, had
used the lower figure of two thousand, although he also added "and those
incomparably better."[12]

Babbage believed that the case of nail-making is "rather an extreme one"(p.
173). Moreover, factories with an extensive division of labor tend also to pay
on the basis of piecework, which renders comparisons of labor productivity more
difficult, since this mode of payment provides stronger incentives to increase
output. But he had a much more fundamental qualification to append to Smith's
emphasis upon the greater dexterity acquired by the workman who continuously
performs the same process. These advantages to repetition, he states, are
merely ephemeral. Under stable conditions, less specialized workers will move
more slowly down the relevant learning curves, but they will eventually
approach, even if they never entirely attain, some lower labor cost asymptote.
Thus, the gain from the constant repetition of a process "is not a permanent
source of advantage; for, though it acts at the commencement of an
establishment, yet every month adds to the skill of the workmen; and at the
end of three or four years they will not be very far behind those who have
never practiced any other branch of their art" (p. 173). Here, as elsewhere,
Babbage makes skillful use of a primitive sort of time-period analysis, which
enables him to distinguish between immediate and longer-term
consequences.[13]
Thus, even though Babbage makes these points in a context where he is
ostensibly recounting what was, when he wrote, merely conventional wisdom, he
in fact ended up providing a fresh and quite powerful new insight.

Adam Smith's third advantage of the division of labor was that it gave rise to
inventions. Smith's treatment of the determinants of inventive activity is
extremely sparse; the textual treatment of the subject in chapter I of the
Wealth of Nations occupied not much more than a single page. In Smith's
view, in the earlier stages of industrial development, most inventions were
the work of the users, that is, workmen whose attention was increasingly upon
a single object. Eventually, however, when the division of labor gives rise to
specialized makers of machinery, the ingenuity of these machine makers comes
to play an increasingly important role; and finally, a more prominent role
comes to be played by those to whom Smith refers as "philosophers or men of
speculation, whose trade it is not to do any thing, but to observe every
thing; and who, upon that account, are often capable of combining together
the powers of the most distant and dissimilar objects."[14]

Babbage's discussion of the determinants of invention is far richer than that
of Smith, and there is of course a perfectly straightforward reason. Smith,
writing in the late 1760s and 1770s, was writing about, and commenting upon, a
society that was still essentially pre-industrial. Babbage, on the other hand,
wrote his book some sixty years later. The interval between the writing of the
two books constituted the heyday of the British industrial revolution. Babbage
is therefore analyzing a society where the division of labor had been carried
to far greater lengths than the society that was known to Adam Smith. Indeed,
very little of the descriptive accounts in Babbage's book, aside from the
examples that Babbage deliberately chose from Smith's own book, dealt with
machinery that would have been recognizable to the author of the Wealth
of Nations.

A central point for Babbage is that an extensive division of labor is itself an
essential prerequisite to technical change. This is so for two related reasons.
First of all, technical improvements are not generally dependent upon a few
rarely gifted individuals, although the more "beautiful combinations" are
indeed the work of the occasional genius (p. 260). Rather, and secondly,
inventive activity needs to be seen as a consequence as well as a cause of the
division of labor. This is so because "The arts of contriving, of drawing, and
of executing, do not usually reside in their greatest perfection in one
individual; and in this, as in other arts, the division of labour must
be applied" (p. 266; emphasis Babbage's).

It is also worth noting that Babbage shows an acute awareness of the economic
forces that drive inventive capability in specific directions and that
influence the timing of inventive effort. In fact, his observations deserve to
be regarded as possibly the earliest treatment of the economic determinants of
inventive activity. Technological change is not, for him, some totally
exogenous phenomenon. On the contrary, he clearly sees the direction of
technological improvements as responding to the relative prices of factor
inputs, and the commitment of resources to the improvements of machinery as
directly connected to the state of demand for the final product that the
machines produce. In urging the importance of careful cost accounting, Babbage
points out that one of its main advantages "is the indication which it would
furnish of the course in which improvement should be directed" (pp. 203-204); a
firm would invest in those technological improvement activities that offered
the highest payoff in terms of cost reduction, but only if it had a close
understanding of those costs. On the demand side, he observes that: "The
inducement to contrive machines for any process of manufacture increases with
the demand for the article" (p. 213). And he also observes that "over
manufacturing" is likely to lead to efforts to reduce costs through machinery
improvement or the reorganisation of the factory (p. 233). Babbage also
suggests a highly valuable research project on the relationship between gluts
and technological improvements. "It would be highly interesting, if we could
trace, even approximately, through the history of any great manufacture, the
effects of gluts in producing improvements in machinery, or in methods of
working; and if we could shew what addition to the annual quantity of goods
previously manufactured, was produced by each alteration." He then adds the
conjecture: "It would probably be found, that the increased quantity
manufactured by the same capital, when worked with the new improvement, would
produce nearly the same rate of profit as other modes of investment."[15]

It seems to be a reasonable claim that Babbage is the first observer of the
events of the industrial revolution to call attention in an explicit way to the
causal links between economic forces and inventive activity.

Chapter 27 of Babbage's book, "On Contriving Machinery," provides valuable
insights into the difficulties associated with the innovation process in the
period when Britain was attaining to the status of "Workshop of the World."

Babbage expresses great concern over the difficulties of executing a new
machine design and putting it into operating form in close accordance with the
specifications of the inventor. This chapter clearly bears the painful imprint
of the author's numerous frustrating experiences in designing highly complex
machines in an age when machine making was still a relatively primitive art.
This was a period when precision in the design and execution of new machinery
was only just coming of age, but when the establishment of a new production
facility was still attended by innumerable uncertainties with respect to the
cost and performance of machinery of novel design. To be sure, the master
machine-tool designer and builder, Henry Maudslay, inventor of the slide
rest, makes an appearance in the pages of Babbage's book, but his
contributions represented only the beginning of a long process of learning to
work metals with higher degrees of precision. Indeed, Babbage thought it
appropriate to include a separate chapter enumerating precisely these
difficulties, in which he placed particular emphasis upon the problems involved
in calculating the cost of new machines.[16]

Babbage stresses in several places the importance of accuracy in the actual
paper design of a new machine. "It can never," he states, "be too strongly
impressed upon the minds of those who are devising new machines, that to make
the most perfect drawings of every part tends essentially both to the success
of the trial, and to economy in arriving at the result" (p. 262). It is clear
from his admonitions on this matter that high-quality draughtsmanship could by
no means be taken for granted. Nevertheless, "if the exertion of moderate power
is the end of the mechanism to be contrived, it is possible to construct the
whole machine upon paper" (p. 261).

However, for more complex machinery where performance will depend heavily upon
"physical or chemical properties" (p. 261), optimum design cannot be determined
on paper alone, and testing and experimentation ("direct trial") will be
unavoidable. One can piece together, from various chapters of the book, a vivid
account of the difficulties confronting would-be innovators during a period
characterized by rapid technical change, particularly in the realm of machine
making itself.

Chapter 29, "On the Duration of Machinery," deals with what a later generation
would call "technological obsolescence," especially as the problem applies to
capital goods with long useful lives, "such as wind-mills, water-mills, and
steam-engines" (p. 283). Babbage introduces a table (p. 284) of the average
annual duty performed by steam engines in Cornwall over the period 1813-1833,
as well as the "average duty of the best engines." These engines, which were
employed in Cornwall's extensive mining operations, provide impressive evidence
of improvements in the construction and management of such engines. One wishes
one had more information concerning their operation; nevertheless, on the face
of it, they show a strong upward trend in performance. For the 21 -year period
as a whole the average duty of the best engines more than triples,
from 26,400,000 in 1813 to 83,306,092 in 1833. Over the same period the average
duty of all the engines rose from 19,456,000 to 46,000,000.

In such an environment, technological obsolescence is a dominating commercial
consideration, and the physical life of a capital good becomes of secondary
importance. Babbage here offers a powerful insight that, its seems fair to say,
is still not fully absorbed today.

`Machinery for producing any commodity in great demand, seldom actually wears
out; new improvements, by which the same operations can be executed either more
quickly or better, generally superseding it long before that period arrives:
indeed, to make such an improved machine profitable, it is usually reckoned
that in five years it ought to have paid itself, and in ten to be superseded by
a better.' (p.285)

The effect of such obsolescence was a rapid downward revaluation of the market
price for older machinery, which indeed is soon rendered commercially
worthless. Babbage cites technological improvements in frames for making
patent-net "not long ago." As a result, a machine that had cost
[[sterling]]1200 and was still "in good repair" a few years later, sold for a
mere [[sterling]]60. But even more extreme evidence of the impact of rapid
ongoing technological improvements in that trade was the decision to abandon
the construction of unfinished machines "because new improvements had
superseded their utility."[17]

Babbage ends this chapter by pointing out that the effect of competition with
respect to durable goods had been to render them even less durable. When
manufactured articles are transported a considerable distance, it is not
uncommon for broken articles to be deemed unworthy of the cost of repair if the
price of labor is higher than in its original place of manufacture. It is
cheaper to purchase a new article (p. 292). This appears to be a practice of
recent vintage when Babbage wrote.

In examining the innovation process specifically from the point of view of the
developer of a potential new machine, rather than its possible user, Babbage
warns his readers of the peculiar uncertainties of the technical problems
involved. In situations that require testing what we would today call a
prototype, the outcome of the tests may be especially sensitive to the quality
of workmanship that was employed in producing the contrivance. Otherwise "an
imperfect trial may cause an idea to be given up, which better workmanship
might have proved to be practicable" (p. 264).

But there is another reason why the outcome of such a test may be inconclusive.
The "art of making machinery" was undergoing such improvement "that many
inventions which have been tried, and given up in one of art, have at another
period been eminently successful" (p.264). This statement might serve as a
remarkably appropriate epitaph to the author's celebrated technical
accomplishments. Indeed, one may read his conclusion as both an astute
observation on the uncertainties associated the innovative process during his
own lifetime, and also as a personal correct premonition concerning his own
ambitious technical enterprise. "These considerations prove the propriety of
repeating, at the termination of intervals during which the art of making
machinery has receive any great improvement, the trials of methods which,
although founded upon just principles, had previously failed" (p. 265).

For the subset of inventions that survives the rigors and uncertainties of this
experimental period, the commercial risks may prove to be as hazardous as the
purely technical risks that had been overcome. The reason is simplicity itself.
The machine may work perfectly well but produce its output "at a greater
expense than that at which it can be made by other methods" (p. 265). Babbage
at several points in the book had urged his readers to pay the most careful
attention to all the costs that would be incurred in some prospective new
machine, while at the same time admitting the difficulties of arriving at
accurate estimates.

But there is still a further and final irony concerning the plight of the
would-be innovator. Assuming that all previous hurdles and initial "teething
troubles" had been overcome, subsequent units of the product could be produced
far more cheaply than the first. Babbage clearly identifies what later
generations would refer to as a "learning curve." His words deserve to be
quoted in full:

`It has been estimated roughly, that the first individual of any newly-invented
machine, will cost about five times as much as the construction of the second,
an estimate which is, perhaps, sufficiently near the truth. If the second
machine is to be precisely like the first, the same drawings, and the same
patterns will answer for it; but if, as usually happens, some improvements have
been suggested by the experience of the first, these must be more or less
altered. When, however, two or three machines have been completed, and many
more are wanted, they can usually be produced at much less than one-fifth of
the expense of the original invention.' (p. 266)

But the subsequent financial fortunes of such an innovator are by no means
assured. Much would depend not only upon the subsequent demand for the
innovation but upon the ability of the innovator to control and capture the
flow of profits generated by the innovation. In a highly competitive
environment of the sort described by Babbage, the profits might well be
captured by others unless the innovator had some specific means that allowed
him to appropriate the benefits - patents, secrecy, tacit knowledge, access to
scarce skills, etc.

Babbage's analysis here takes on additional importance because it powerfully
influenced Marx, who quoted Babbage's estimate approvingly.[18] In this particular context Marx was anxious to
emphasize how the technological improvements in a machine shortened its life
expectancy and thereby intensified the forces making for the prolongation of
the working day on the part of the capitalists anxious to recoup their large
investment as quickly as
possible.[19] On
the other hand, in volume III of
Capital Marx again drawing upon Babbage's treatment, called
attention to "the far greater cost of operating an establishment based on a new
invention as compared to later establishments, arising ex suius ossibus.
This is so very true that the trail-blazers generally go bankrupt, and only
those who later buy the buildings, machinery, etc., at a cheaper price make
money out of it."[20] This is an intriguing
statement on Marx's part, insofar as it portrays the capitalist, or at least
the innovating capitalist, in a distinctly sympathetic way. But, more
importantly, it would be essential to know how "generally" such bankruptcy
occurs. Moreover, if this were generally the case, and if
technological change were as central to long-term capitalist growth as Marx
consistently asserted, it would constitute a powerful argument for the social
necessity of high profits in order to compensate the occasional successful
innovator for undertaking such great risks. Not surprisingly, Marx does not
draw this implication.

Babbage's concern with the division of labor as it relates to technological
improvements leads him to a significant extension of his analysis into the
field of international trade. His main concern was with a special issue: the
restrictions that had recently been imposed by parliament upon the export of
certain classes of machinery. Such restrictions, in his view, represented a
needless and, indeed, counterproductive pandering to the interests of the
makers of machinery, who feared the prospect of commercial competition from
foreigners equipped with the latest machinery. But Babbage perceives[21] that Britain was already well on the way to
developing a dynamic comparative advantage in the making of machinery. In his
view, if the country could maintain its superiority in the manufacture of
machinery, it would have little to fear from the acquisition of high-quality
machinery by overseas competitors.

Babbage distinguishes sharply between the ability to contrive new machines and
the ability to manufacture them. Even if the ability to contrive were equally
distributed among countries, "the means of execution" are nevertheless
different (p. 365). These means of execution obviously include the highly
skilled makers of machinery, a class of workers who are "as a body, far more
intelligent that those who only use it" (p.364). In a regime of rapid
technological change, the country with a higher skill capability will continue
to have much speedier access to the best machinery. By allowing domestic
manufacturers the opportunity to sell their products abroad, the country will
in fact solidify its superiority in machine making (pp. 370-373). It will
enrich itself by enlarging the class of machine makers. Such workmen
`possess much more skill, and are paid much more highly than that class who
merely use it; and, if a free exportation were allowed, the more valuable
class would undoubtedly, be greatly increased; for, notwithstanding the high
rate of wages, there is no country in which it can at this moment be made,
either so well or so cheaply as in England. We might, therefore, supply the
whole world with machinery, at an evident advantage, both to ourselves and our
customers. (p.372; emphasis Babbage's)

The separate strands of Babbage's argument in this chapter are not entirely
distinct. On the one hand, he asserts that, in the absence of trade
restrictions, English machine users will always have the advantage of prior
access to the best machines. On the other hand, he also asserts that such
access is not a sufficient condition for commercial success. Even if foreign
competitors have equal access to the best technology, they will not compete
successfully so long as they fail to achieve the admirable organizational
adaptations of the industrial economy that have already been achieved in
England. Here Babbage seems to have come full circle, to the overarching theme
of the book: the advantages accruing to a society that manages to organize its
economic life in close accordance with the dictates of the division of labor.

This seems to be the spirit of his response to the charge that the elimination
of restrictions on machinery exports will provide foreigners with machinery
that will threaten England's competitive advantage.

`It is contended that by admitting the exportation of machinery, foreign
rnanufacturers will be supplied with machines equal to our own. The first
answer which presents itself to this argument is supplied by almost the whole
of the present volume; That in order to succeed in a manufacture, it is
necessary not merely to possess good machinery, but that the domestic economy
of the factory should be most carefully regulated.'[22]

Of course, for the larger economy outside the "domestic economy of the
factory," appropriate regulation should be understood to include the force of
competition: "it is only in countries which have attained a high degree of
civilization, and in articles in which there is a great competition amongst the
producers, that the most perfect system of the division of labour is to be
observed" (p. 169). And countries that can maintain a more advanced division of
labor, in this enlarged sense, than their foreign competitors, need not be
excessively concerned over their prospective competitiveness.

Chapter 20, "On the Division of Mental Labours," is a fascinating chapter for
several reasons. It involves, to begin with, a direct application of Babbage's
reasoning on the division of labour in the previous chapter, to the specific
realm of the activities of the human mind. Second, it contains an extensive
discussion of Babbage's own work on a "calculating engine," placed in the
larger context of his analysis of the application of machine methods to
industrial production. And, third, it provides an absorbing historical account
of the project that culminated in Babbage's own efforts to develop a
calculating-engine.

Starting with this third point, these efforts had their origin, remarkably
enough, in the accidental perusal of Smith's Wealth of Nations by a
French government official who happened upon the volume in a bookstore. A
Monsieur Prony had been charged by the French government with the Herculean
task of superintending the production of a series of logarithmic and
trigonometric tables that would facilitate the transition to the recently
adopted decimal system.[23]

The tables that M. Prony was to calculate were to occupy no less than seventeen
large folio volumes.

M. Prony then proceeded with a threefold division of labor including (I) "five
or six of the most eminent mathematicians in France," (2) seven or eight
persons, not eminent mathematicians, but persons possessed of a "considerable
acquaintance with mathematics," and (3) a group whose number varied between
sixty and eighty, who generated the final tables "using nothing more than
simple addition and subtraction" (p. 194).

M. Prony's procedure, Babbage astutely observes, "much resembles that of a
skillful person about to construct a cotton or silk-mill, or any similar
establishment" (p. 195). None of the well-educated groups involved in the
project played any role in the "dog-work" of actual calculation. It was, of
course, Babbage's intention that his calculating engine would provide a machine
substitute for all of the work performed by the third group.

Babbage completes the specification of the neat parallelism of the division of
labor between the mechanical and mental domains:

`We have seen, then, that the effect of the division of labour, both in
mechanical and in mental operations, is, that it enables us to purchase and
apply to each process precisely that quantity of skill and knowledge which is
required for it: we avoid employing any part of the time of a man who can get
eight or ten shillings a day by his skill in tempering needles, in turning a
wheel, which can be done for sixpence r day; and we equally avoid the loss
arising from the employment of an accomplisheed mathematician in performing the
lowest processes of arithmetic.' (p 201)

But the improvements in the cost of calculation which are now on the horizon,
and which are the offspring of the division of labor, are by no means exhausted
by purely financial considerations. For, in Babbage's view, as a country
progresses in its arts and manufactures, continued progress comes to depend
increasingly upon a growing intimacy between science and industry. In the final
chapter of the book (chapter 35), "On the Future Prospects of Manufactures as
Connected with Science," Babbage argues that science itself is becoming subject
to the same law of the division of labor that is the central theme of the book.
Science needs to be cultivated as a full-time, specialized activity by those
with the "natural capacity and acquired habits" (p. 379). Such specialization
is unavoidable because "the discovery of the great principles of nature demands
a mind almost exclusively devoted to such investigations; and these, in the
present state of science, frequently require costly apparatus, and exact an
expense of time quite incompatible with professional avocations" (p. 380).
Babbage's reference to "costly apparatus" is especially apposite. One of the
most costly of all research instruments today is a large Cray computer!

Babbage closes a long apotheosis to science by pointing out that the progress
of science itself will be increasingly governed by progress in the ability to
calculate: "It is the science of calculation, - which becomes
continually more necessary at each step of our progress, and which must
ultimately govern the whole of the applications of science to the arts of
life."[24]

In short, it is Babbage's view that mankind's future prospects will be
dominated by the fact that "machinery has been taught arithmetic" (p. 390).
Babbage was of course remarkably prescient, but the possibility of teaching
machinery arithmetic would have to await the age of electronics.

Thus Babbage's analysis involves a long chain of reasoning that has its origin
in the division of labor; from there, Babbage spells out what he perceives as
its far-reaching implications through the realms of technology and then even
science. But one further feature, of great significance, has so been
neglected. The extension of the division of labor can and was necessarily
leading to the establishment of large factories.[25] Indeed, Babbage provides the first extended
discussion in the literature of economics of an issue of immense future
significance: the economies associated with large-scale production. The
chapter devoted to this topic, chapter 22, "On the Causes and Consequences of
Large Factories," in turn powerfully influenced the treatment of this topic by
two of the most influential, perhaps the two most influential economists of
the nineteenth century, John Stuart Mill and Karl Marx.

Babbage had shown in chapter 19, "On the Division of Labour," that a critical
advantage of that division was that it enabled the employer to purchase only
the precise amount of each higher skill category, and no more, that was
required by the different processes under his roof. Ideally, although the
ideal was hardly ever fully achieved, no worker was ever paid at a rate that
was higher than that appropriate to his assigned activity. But in chapter 22
he specifies an important implication of such an arrangement. In
order to produce at minimum cost, it will be necessary to expand the factory
by some multiple whose size will depend upon the specific labor requirements
imposed by the division of labor. It follows from the principle of the division
of labor that " When the number of processes into which it is
advantageous to divide it, and the number of individuals to be employed by it
are ascertained, then all factories which do not employ a direct multiple of
this latter number, will produce the article at a greater cost" (p. 212;
emphasis Babbage's).

Babbage adds a variety of other circumstances that, he believes, will offer
advantages to manufacturing establishments of great size. The most common
denominator involves the indivisibility of certain valuable inputs which fail
to be fully utilized in smaller establishments. These would include the
availability of higher-wage workmen who are skilled in adjusting or repairing
machines;[26] a small factory with few machines
could not fully utilize such a highly skilled worker. Similarly, the
introduction of light for night work, or an accounting department, involve
sizable fixed costs that are also under-utilized at low levels of output. The
possibilities for effectively utilizing waste materials are greater in a larger
plant, and this is sometimes further facilitated by "the union of the trades in
one factory, which otherwise might have been separated" (p. 217) Agents who are
employed by large factories frequently provide services that cost little more
than those provided to smaller establishments, even though the benefits of the
service to the large factory are far more valuable.

Finally, Babbage quotes approvingly a Report of the Committee of the House of
Commons on the Wool Trade (1806) which asserts that large factories can afford
the risks and experiments to generate technological change that are not
feasible for the "little master manufacturers."

`it is obvious, that the little master manufacturers cannot afford, like the
man who possesses considerable capital, to try the experiments which are
requisite, and incur the risks, and even losses, which almost always occur, in
inventing and perfecting new articles of manufacture, or in carrying to a state
of greater perfection articles already established . . . The owner of a factory
. . . being commonly possessed of a large capital, and having all his workmen
employed under his own immediate superintendence, may make experiments, hazard
speculation, invent shorter or better modes of performing old processes, may
introduce new articles, and improve and perfect old ones, thus giving the range
to his tastes and fancy, and, thereby alone enabling our manufacturers to stand
the competition with their commercial rivals in other countries. `(p 223)

Babbage's treatment, although obviously of limited scope, was nevertheless a
pioneering first effort to identify the economic advantages of bigness on which
first John Stuart Mill and later Karl Marx drew extensively.[27] It has often been asserted that Marx was the
first economist to identify the sources making for a tendency for firms to
expand in size. But that priority, if denied to Babbage, certainly belongs to
Mill, whose analysis well preceded that of Marx. Chapter 9, book I, of Mill's
hugely successful Principles of Political Economy (1848), titled
"Of Production on a Large, and Production on a Small Scale," is the first
systematic treatment of increasing returns to large-scale production. Mill
acknowledges his debt to Babbage in the opening paragraph of this chapter. He
points out that there are advantages to large-scale enterprise

`when the nature of the employment allows, and the extent of the possible
market encourages, a considerable division of labour. The larger the
enterprise, the farther the division of labour may be carried. This is one of
the principle causes of large manufactories. Even when no additional
subdivision of the work would follow an <<enlargement of the operations,
there will be good economy in enlarging them to the point at which every person
to whom it is convenient to assign a special occupation, will have full
employment in that occupation.'[28]

Mill illustrates this statement by an extensive quotation from Babbage's
chapter "On the Causes and Consequences of Large Factories." The extract
covered most of the points that we have just discussed and it amounted to two
full pages of Babbage's original text. Mill included an even more extensive
extract from Babbage on the optimal payment arrangements for workers in the
first (1848) and second (1849) editions of Principles.

Marx's intellectual indebtedness to Babbage on the matter of increasing returns
to large-scale production appears to be at least as extensive as Mill's, and is
amply acknowledged, especially by the use of numerous citations and quotations.
But Babbage's influence on Marx is even more pervasive, as would be revealed by
a close textual comparison of Babbage's treatment of the causes and
consequences of the division of labor with that of Marx in two central chapters
of volume I of Capital: chapter 14 on "Division of Labour and
Manufacture," and chapter 15 on "Machinery and Modern Industry." It would take
us much too far afield to explore this relationship in detail. The essential
point is that Marx's most fundamental criticisms of capitalism as a social and
economic system turn upon its peculiar division of labor. The degradation of
the worker under advanced capitalism, especially the dehumanising effects of
specialisation, and the systematic tendency to deprive the worker of skills and
to incorporate those skills into machine, are all consequences of the division
of labor as treated by Babbage.

Marx even takes his definition of a machine from Babbage. According to Marx,
"The machine, which is the starting-point of the industrial revolution,
supersedes the workman, who handles a single tool, by a mechanism operating
with a number of similar tools, and set in motion by a single motive power,
whatever the form of that power may be."[29] Marx
here cites as his authority Babbage's statement from his chapter (19) on the
division of labor: "The union of all these simple instruments, set in motion by
a single motor, constitutes a machine."[30]

Much of Marx's critique of capitalism flows from examining exactly those
characteristics of the division of labor that Babbage had identified sources of
improved efficiency in the factory. However, Marx considers them from a very
different perspective: specifically, from the point of view of the welfare of
the worker. From Babbage's perspective, "One great advantage which we may
derive from machinery is from the check which it: affords against the
inattention, the idleness, or the dishonesty of human agents" (p. 54). Putting
aside the matter of dishonesty, Marx sees the introduction of machinery as
introducing an entirely new form of oppression and loss of the worker's
essential humanity.

`In handicrafts and manufacture, the workman makes use of a tool, in the
factory, the machine makes use of him. There the movements of the instrument of
labour proceed from him, here it is the movements of the machine that he must
follow. In manufacture the workmen are parts of a living mechanism. In the
factory we have a lifeless mechanism independent of the workman, who becomes
its mere living appendage. (Marx, Capital, p. 422).

Additionally, of the system of manufacture, Marx states: "It converts the
labourer into a crippled monstrosity, by forcing his detail dexterity at the
expense of a world of productive capabilities and instincts; just as in the
States of La Plata they butcher a whole beast for the sake of his hide or his
tallow" (ibid., p. 360). The freedom of the capitalist, under the division of
labor, to purchase labor of lower skills, translates into "deskilling" from the
laborer's point of view. Babbage's continuous citation of the "advantages" of
the division of labor in making it possible to insert women, boys and girls at
very low pay into jobs formerly performed by men readily translates into Marx's
searing indictment of capitalism precisely because of its intensive
exploitation of the division of labor.

` Within the capitalist system all methods for raising the social
productiveness of labour are brought about at the cost of the individual
labourer, all means for the development of production transform themselves into
means of domination over and exploitation of, the producers; they mutilate the
labourer into a fragment of a man, degrade him to the level of an appendage of
a machine, destroy every remnant of charm in his work and turn it into a hated
toil; they estrange from him the intellectual potentialities of the
labour-process in the same proportion as science is incorporated in it as an
independent power; they distort the conditions under which works, subject him
during the labour-process to a despotism the more hateful for its meanness;
they transform his life-time into working-time, and drag his wife and child
beneath the wheels of the Juggernaut of capital. (Marx, Capital, p. 645)

It is tempting to conclude that Marx's analysis of the division of labor and
its consequences is the same as that of Babbage, only considered dialectically!

I have attempted to show why Babbage continues to be deserving of our
attention, not only as the pioneer of the computer, but as an original
contributor to the development of economic ideas. Moreover, these two roles
were, as we have seen, closely connected by Babbage's own personal
experiences. His prolonged frustrations over the attempt to construct a
working computer led him to many of the profound and precocious insights that
are developed in his book. The book has much to offer to any reader today who
wishes to understand the difficulties confronting the innovative impulse in
the early days of industrialisation. Babbage's difficulties were, of course,
far greater than those of most innovators because the goal he had set for
himself was so breathtakingly ambitious. In confronting his own difficulties
as a computer pioneer more than a century ahead of its time, Babbage in fact
became, however reluctantly, a pioneer economist.

If the world has eventually beaten a path back to Babbage's door as a result of
the computer revolution, a strong case can now be made that a second path to
that door remains to be beaten. For Babbage, as we have seen, also pioneered in
the analysis of technological change. The subject suffered a long neglect when
the main thrust of economic analysis came to be dominated by the neoclassical
analysis of comparative statistics in the late fifteenth century. With only a
few notable exceptions, including the seminal work of Schumpeter and Kuznets,
economists devoted little attention to either the causes or consequences of
technological change until 1950s.

The revival doubtless owed a great deal to the reawakening of interest in
problems of long-term economic growth in less-developed countries as well as
in the industrialized west. The renewed interest was reinforced, within the
economics profession, by the researches of Jacob Schmookler, Moses Abramovitz,
Robert Solow, and others, which pointed forcefully to two things: (1) the
existence of economic forces that powerfully shape both the rate and the
direction of inventive activity; and (2) the prominent role played by
technological change in generating long-term economic growth.

Babbage's book, On the Economy of Machinery and Manufactures continues
to have much to say to readers who are concerned with the causes of as well as
the consequences of technological change. But it can, of course, equally well
be read for the sheer intellectual excitement it provides in following a
first-class mind as it attempts to comprehend, and to impose order upon, newly
emerging forms of economic activity and organisation